Smart meter tax credits can increase savings, decrease overall cost

Sponsored by

by Kurt Mars and Jim Manley, PwC

More than 36 million smart meters have been installed in the U.S., and that count is expected to nearly double to 65 million by 2015, according to the Institute for Electric Efficiency.

The cost to modernize the U.S. power grid is expected to be great. Smart meter deployments routinely exceed $1 billion. Although the American Recovery and Reinvestment Act of 2009 provided $3.4 billion in grants to spur smart grid investment, the expansion of these programs, as well as increasing deployment of distributed and renewable generation and an emphasis on energy efficiency, load control and demand response, have created additional funding requests. With the estimates of long-term investment in the billions, regulators are applying a critical eye to business cases for these implementations, and utilities are looking for every possible way to maximize benefits to ratepayers and shareholders.

This increased scrutiny is no secret. Headlines tell of utilities where technology maturity, consumer acceptance and other program aspects have created short-term program issues. As these first-generation programs reach sustained operation, however, likely there will be new scrutiny paid to ongoing operational costs and benefits, as well, some of which might never be realized. Utilities confronted by these circumstances often are looking for new cost offsets or benefits that can be used to minimize these impacts to planned program performance.

In any smart grid deployment, disciplined assessment, planning and management are fundamental to containing costs. But ancillary strategies to offset this spending often are overlooked. Power and utility companies can generate cash to offset cost overruns with some of the tax credits and deductions associated with smart meter deployments.

Uncovering Tax Credits

Identifying areas in the smart grid value chain that can provide tax benefits could help offset overall cost of the project but can be difficult to capture all of the potential tax savings related to these implementations. That's because there is no one authority or clearinghouse for information on smart grid tax benefits. In lieu of that, power and utility companies should assess their spending to date, as well as project expenditures, with careful emphasis on reviewing each component of cost separately. The first step might be to categorize smart meter spending into cost buckets related to hardware and software, then to identify potential tax credits, deductions and other savings associated with each bucket. For example, instead of a 20-year tax life for the old meters, taxpayers are permitted an accelerated depreciable life for smart meters. Taxpayers should ensure they are taking advantage of this. Other opportunities might include some of the following:

R&D tax credits and deductions for R&D and software development. During the past year, smart grid benefits have been countered by consumer concerns about inaccurate meter readings, unreliable data transmission, potential health and safety hazards and data privacy concerns. To resolve these technical and safety issues, utilities typically invest significant effort into research and experimentation with the meters.

Many do not realize that some of the costs related to resolving these technical uncertainties might be eligible for federal and state research and development tax credits and deductions. Similarly, certain components of a company's investment in writing software is necessary to process the data generated by these meters and may be deducted for tax purposes, rather than capitalized and amortized.

Property taxes. Although many state and local tax jurisdictions assess meters in general as personal property, certain jurisdictions provide specific exemptions that might apply to smart meters and other similar equipment. Each state and locality will assess this type of property differently, so it's important to investigate how meters are evaluated throughout all operating regions. In addition, certain jurisdictions allow taxpayers to exclude the value of the software embedded in the meters from the value on which property taxes are assessed.

The size and frequency of smart meter programs require that power and utility companies proactively seek auxiliary methods to offset these outlays. Tax credits on smart meters can provide additional funding without added expenditures.

Authors

Kurt Mars is a tax partner in PwC's power and utilities practice based in San Diego. Reach him at kurt.mars@us.pwc.com.

Jim Manley is the state and local tax leader of PwC's power and utilities practice based in Detroit. Reach him at james.r.manley@us.pwc.com.

More Electric Light & Power Current Issue Articles
More Electric Light & Power Archives Issue Articles

Sponsored by

CURRENT ARTICLES

Appalachian Power requests energy efficiency programs for Virginia

10/24/2014

Appalachian expects the six programs to save about 43,000 MWh in energy usage

Electric distribution investment up from past decades

10/24/2014 Electricity distribution systems differ from transmission systems, which have also experienced increased investment over t...

Toledo Edison builds transmission line to serve Home Depot warehouse

10/24/2014

The new 1.65-million square foot facility will be used primarily for online order fulfillment 

Rwanda to switch on peat-fired power plant

10/24/2014

The $36 million project will produce cheaper electricity compared to hydro or thermal power 

Has privatization failed Texas utility customers?

10/24/2014 Relative electricity prices have increased dramatically, and dangerously lower electrical system reliability is the result...

ETT proposes Del Sol to JackieHoward transmission line in South Texas

10/23/2014 Electric Transmission Texas is planning to construct a new $24.5 million, 345-kV transmission line to connect the 200 MW L...

Gamesa delivers 74 MW wind farm to Grupo Mexico

10/23/2014 Gamesa currently has 1 GW of installed wind capacity in Mexico, with another 70 MW in the pipeline at the Dos Arbolitos pr...

ON DEMAND WEBCASTS

Architecting Communication Networks for Smart Grids

This webinar will provide the essentials of communication networking to meet the challenges of th...

The Power of Behavioral Design: Lessons for Energy Efficiency Providers

Behavioral design principles are key differentiators when it comes to influencing consumer behavi...

3D BIM for Substations—Driving Efficiency from Design Through Operation and Maintenance

In this webinar, PESTECH will describe their transition to intelligent substation design and its ...

High Availability Networks. Application of IEC6439-3 Protocols for IEC61850 Process Bus implementation

Networks can now be built for the first time with genuinely uninterrupted data communication betw...

Understanding Moisture Dynamics in Power Transformers

While the need to measure moisture in power transformers has been well documented and is universa...

EL&P BUYER'S GUIDE PRODUCTS

MITEM Corp

Provides CRM solutions for regulated U.S. public utilities. The product, MitemView integrates differently designed systems to share critical data a...

Resources on Demand

Manages resource requests, tracks personnel movements, and supports lodging/logistics during a power restoration event.

Smart Grids

Quanta is contributing to its customers' smart grid initiatives by installing technology on power networks to provide energy management solutions f...

Horizontal Directional Drilling

With 28 small, mid-sized and large drilling rigs, Quanta Pipeline Services is one of the largest horizontal directional contractors in the world fo...

FEATURED ENERGY JOBS

View more Job Listings >>

POWERGRID International

March 2014
Volume 19, Issue 3
1403PG-cover

ELECTRIC LIGHT & POWER

January 2014
cover